Business Budgeting: Grow Your Business, Get Investors!

Key Messages

• Budgeting is critical to accessing funds and achieving growth
• Lack of budgeting and formal planning is an obstacle to the growth of small businesses

In 2020, the country saw a registration of 26,256 new businesses. This has increased considerably since then. Nevertheless, the small to medium-sized enterprises (SME) failure rate, according to the University of Botswana Research Innovation and Scholarship Archive (UBRISA) research of 2004, stood at 80 percent. This industry has the potential to become the backbone of Botswana and to contribute significantly to the gross national product of Botswana. What contributes greatly to this failure rate are the budgeting decisions and budgeting practices taken by business owners and entrepreneurs. A key component of any business plan is the budget.

Budgeting is critical for the success of small businesses. It requires attention to detail and the ability to do basic accounting. Any start-up company’s budget will comprise expenses such as manufacturing costs, operating expenses, marketing expenses, capital expenses, revenue projections or break-even points. Being able to put these expenses into a spreadsheet and create a budget will help business owners keep track of important financial information.

Detailed budgets are essential for several reasons. Business budgeting encourages financial health. By knowing how much money you have, where your funds are going to be allocated and how much profit you stand to make, you will be able to know the sustainability of your business as well as whether or not your goals will be realized.

Secondly, budgeting improves strategic planning. A strategic plan is a process of defining the organization’s vision and outlining the goals and objectives of the business. A budget can determine and inform strategic decisions that the business needs to make such as whether it can procure particular assets and whether it should downsize or expand.

Thirdly, budgets can attract investors. No funder or funding institute can put their money into a business that has no clear vision of how their money is going to work for them. A business budget gives investors confidence that the owner not only knows how to manage and distribute funds but also that they have a plan of how they are going to multiply their money.

The following are steps that can guide start-up businesses or even continuing businesses that never got around to creating a budget to finally get started. The first, initial step is to include all the costs for the first day of business (whether the business is digital or brick-and-mortar). These can be purchasing location, security deposits, interior improvements, signages, office furniture, machinery, vehicles, promotional material or launch activities for those with an expansive budget. All these would need to be ready before one can open a shop.

Step number two is to estimate monthly expenses. This includes all fixed and variable expenses. Fixed expenses that appear frequently in businesses’ budgets are rental costs, utilities, phone bills, office supplies, service fees, website subscriptions, billboard subscriptions, insurance fees and loan repayment fees amongst others. Variable expenses on the other hand are inconstant costs. They can be determined by orders or the number of customers serviced monthly. These can be production costs, raw materials or wholesale prices for goods.

Step three of creating the budget for the business is estimating monthly sales. This step is challenging for new businesses as they do not have a pre-existing record from which to project their sales. These businesses can use three scenarios to guide them; the best-case scenario, the worst-case scenario and the likely scenario. Once they have established these then they can share the likely scenario which would serve as a more realistic projection from the three.

The fourth step to be mindful of is the cash flow statement. It estimates and summarizes how cash comes into the business and eventually leaves the business. These usually span over a year. After stating your income and expenses, deduct expenses (cash outgoings) from the income, the final figure is your cash flow figure which can guide your expenditure or the direction your business goes in.

Acquiring financial advice and assistance from professionals or enrolling in a short course on accounting and finance management will be necessary for the successful management of company finances. Lack of budgeting and formal planning are obstacles to the growth of small businesses.

Botswana has different funding institutions that exist to promote citizen entrepreneurship such as the Botswana Development Corporation (BDC), Citizen Entrepreneurial Development Agency (CEDA), National Development Bank (NDB), commercial banks and non-banking financial institutions. Procuring these funds is a strenuous process but through full dedication and thorough planning to meet the objectives, any small business can access funding, and budget and begin to thrive.